China is the world’s No. 2 economy and home to dozens of companies that trade in the U.S. Right now, JD.com (JD), Pinduoduo (PDD), Canadian Solar (CSIQ), BYD (BYDDF) and Baidu (BIDU) are China stocks worth watching or potentially buying.
It’s been a tough couple of years for Chinese stocks. The Covid pandemic, and Beijing’s zero-Covid policy, have slammed the economy. Meanwhile, regulatory crackdowns vs. technology and data-centric firms such as Alibaba (BABA), Tencent (TCEHY) and NetEase (NTES) have been a major headwind. The tech crackdown seems to have eased, with Alibaba affiliate Ant Group getting approval to raise more capital.
U.S. tensions are a concern. U.S.-listed Chinese stocks sank Friday and Monday over an alleged Chinese spy balloon traveling over the U.S. The Biden administration shot the balloon down on Saturday. But top China stocks generally held key levels Monday.
In recent months, the White House has barred shipments of key chip technology to China, adding to tariffs and other curbs on Chinese goods.
Meanwhile, China has rolled back Covid restrictions significantly. With an end to lockdowns and other severe controls, a massive wave of infections took hold. But investors are looking beyond to brighter days ahead. With China New Year holidays out of the way, will the Chinese economy finally rebound?
While the current top China stocks to buy or watch are dominated by e-commerce plays, don’t forget EV startups such as Nio (NIO) and Li Auto (LI). Like global giant BYD (BYDDF), all are taking on Tesla (TSLA) in the world’s largest EV market.
Tencent, NetEase and search-and-AI specialist Baidu (BIDU) are other internet giants to follow.
Top Chinese Stocks To Buy Or Watch
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JD.com is China’s No. 2 e-commerce firm, behind only Alibaba.
It’s been consistently profitable for years, with annual growth since 2018. Earnings growth has accelerated for the past two quarters, soaring 80% in Q3. But revenue growth has slowed for six straight quarters, to just 1%, amid Covid shutdowns and related disruptions.
A crackdown on big internet platforms, though falling harder on Alibaba and Tencent, still weighed on JD.com stock.
JD.com stock peaked at 108.29 in February 2021, tumbling to a Covid low of 33.17 on Oct. 24, 2022. Since then shares have run higher, clearing the 50-day in early November, and it’s back above its 200-day line for the first time in almost a year. Shares surged to start the year, but have pulled.
Investors could view 67.19, just above the Jan. 4 high, as a handle buy point for a consolidation going back to late August or even July. The 67-68 area has been a key resistance area over that time.
JD.com’s bounce from the 21-day line on Jan. 26-July 27 offered an aggressive entry, but shares has fallen back below the 21-day line, 50-day and now the 200-day.
Bottom line: JD.com stock is not a buy.
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BYD is easily the world’s largest EV maker, including fully electric battery electric vehicles (BEV) and high-mileage plug-in hybrids (PHEV). It still trails Tesla in global BEV sales, but is closing the gap.
BYD is China’s biggest BEV maker and the world’s No. 2 EV battery maker.
On Jan. 30, BYD said full-year net profit was 16 billion yuan-17 billion yuan ($2.37 billion-$2.52 billion), up 425%-458% in local currency terms. That implies Q4 net profit of 6.7 billion yuan-7.7 billion yuan ($990 million-$1.17 billion), up 1,013%-1,179% in local currency.
Annual revenue should exceed 420 billion yuan ($62.2 billion), BYD said. That implies Q4 revenue exceeding 152.3 billion yuan ($22.6 billion), suggesting at least 115% year-over-year growth.
Q3 BYD earnings shot up 350% in local currency terms, with adjusted profit skyrocketing 923%. Revenue leapt 116%.
On Feb. 1, BYD reported January sales of 151,341 all-electric BEVs and plug-in hybrids, up 62% vs. a year earlier but down 36% vs. December’s record 235,197 vehicles. Covid production impacts in late December continued into early January. Meanwhile, the China New Year holiday also impacted output and sales.
In January, BYD sold 71,338 BEVs and 78,826 PHEVs.
February production and deliveries should ramp up strongly.
The company is targeting four million NEV sales in 2023.
The EV giant is moving up the price scale from moderate priced vehicles. The BYD Seal has very similar specs to a Tesla Model 3. When the Seal launched last fall, it was substantially cheaper than a Model 3. But modest BYD price hikes and big Tesla price cuts have narrowed the gap to $600.
Its 90% Denza unit recently launched its D9 minivan starting around $50,000. The Denza unit, 10% owned by Mercedes, will launch an SUV in early 2023.
BYD launched its super-premium brand on Jan. 5. Yangwang, which means “look up,” unveiled an off-road SUV and a super car, both starting at 1 million yen ($145,000). It’s possible that the luxury SUV will launch in the third quarter.
But BYD is also moving toward launching the Seagull, a small hatchback that will start around $9,000.
BYD is in the midst of a massive global expansion, recently beginning sales in Australia, Singapore, New Zealand, Thailand, Malaysia and several European countries. Japan, India, Mexico and Malaysia among new markets in early 2023. BYD also is entering Mexico this year, as part of a big push throughout Latin America.
It’s building a factory in Thailand and will do so in Brazil.
It plans on having at least one European factory, but no official decision has been announced.
BYD makes its own chips and batteries, which helped limit supply chain issues in recent years. It supplies batteries for third-party EVs, including Ford Motor (F), Toyota (TM) and Tesla.
It’s also a big player in battery storage for home or utility-scale projects. That business may expand significantly in 2023 as battery production increases beyond BYD’s own fast-growing EV needs.
BYD announced a big energy storage project in Nevada. It’s apparently with Warren Buffett’s Berkshire Hathaway Energy.
BYD stock hit a bear-market low of 21.29 on Nov. 25, in part due to China’s lockdowns. But as curbs have eased, BYDDF has rebounded strongly.
BYD stock broke above the 200-day line on Jan. 26 and kept rising for a few days. Shares are back at the 200-day line. The stock appears to have a handle now, though the midpoint is slightly below the midpoint of the deep base.
BYD is listed in Hong Kong and Shenzhen and trades over the counter in the U.S., so BYDDF can be prone to mini-gaps.
Warren Buffett’s Berkshire Hathaway (BRKB) has been a longtime major investor in BYD. But Berkshire has sold slices of its H-shares in BYD in nine moves, starting in late August. The latest was disclosed on Feb. 9. Berkshire still owns about 6% of BYD, based on all share classes, but has pared its stake by more than 40%.
Bottom line: BYD stock is not a buy.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
Canadian Solar Stock
While technically based in Ontario, Canada, Canadian Solar is largely a Chinese company. It makes and installs solar modules as well as developing and building solar power plants.
Canadian Solar’s earnings per share fell in 2019, 2020 and 2021, but are expected to more than double in 2022, with a 68% gain in 2023. EPS rose 494% and 167% in the latest two quarters.
CSIQ stock hit a 52-week high 47.69 on Aug. 18, but then tumbled to 27.38 on Oct. 24. Shares vaulted above their 50-day and 200-day lines on Jan. 6, breaking a steep downtrend, offering an early entry. Shares kept running for several days before pulling back, forging a handle with a new buy point of 44.17.
CSIQ stock has flirted with early entries from this handle but backed off. However, shares have found support at the 21-day line.
Bottom line: CSIQ stock is not a buy.
Pinduoduo is the No. 3 e-commerce player in China, after Alibaba and JD.com. But it’s outperformed its larger rivals in recent months, with its bargain focus appealing to consumers in a tough economy.
Sales growth has accelerated for the past three quarters, from 5% to 50%. Pinduoduo earnings spiked 256% in Q3, reported on Nov. 28.
PDD stock peaked at 212.60 in February 2021 then crashed to 23.21 on March 15, 2022. But since then, Pinduoduo stock has trended higher, in a volatile fashion.
PDD stock gapped out of a 47%-deep base on Nov. 28 following earnings, spiking 31% for the week to a 52-week high. Shares kept running higher before pulling in early February to test the 10-week line.
It’s the first 10-week line test since the late November breakout. A strong bounce from this area could offer an aggressive buy.
Also, PDD stock has a rare ascending base on a weekly chart with a 106.48 buy point.
Bottom line: PDD stock is not a buy, but it’s close.
Baidu is China’s search engine giant, though it’s also a big player in autonomous driving. Its self-driving software is being tested in some big cities in L4 environments. Its Jidu Auto joint venture with auto giant Geeley should begin deliveries in 2023.
Baidu plans to launch an AI chatbot like OpenAI’s ChatGPT in March, Bloomberg reported Jan. 29, citing sources.
On Feb. 7, Baidu confirmed it will open its AI chatbot “Ernie” next month.
Earnings and revenue have struggled in recent quarters. EPS rose 4% in Q3, but after four quarters of year-over-year declines. Revenue fell 9% and 8% in the past two quarters. EPS growth should improve slightly in 2023.
Baidu stock peaked at 354.82 in February 2021, crashing to 73.58 in October 2022. Since then, shares have nearly doubled, retaking all the key moving averages. Baidu arguably has a new base going back several months, though there was no prior uptrend.
BIDU stock gapped higher Feb. 7 on the AI chatbot news, above key resistance around 155-156. But shares fell sharply to close the week lower, below their 21-day line. Ideally, BIDU stock would settle down for a time.
Bottom line: BIDU stock is not a buy.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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